E-Supply Chain PDF

CHAPTER 10
e-Supply chain management
D. Li
e-Business Division, Management School,
University of Liverpool, UK
Abstract
E-Supply chain management in a manufacturing context, is a series of Internet-
enabled value-adding activities to guarantee products created by a manufacturing
process can eventually meet customer requirements and realize returns on
investment. Supply chains have advanced in the last two decades with improved
efficiency, agility and accuracy. The recent advancement of Internet technology
has brought more powerful support to improving supply chain performance. In
this context, e-supply chain management becomes a new term that distinguishes
itself by net-centric and real-time features from traditional supply chain
management. In this chapter, principles and methodologies of e-supply chain
management are discussed. It focuses on a fundamental challenge for supply
chain management: how to efficiently integrate and optimize supply chain
operations with widespread marketplaces and characteristic demands using the
latest advances in information and communication technologies. A case of e-
supply chain management application is also described in this chapter. As
Internet and related technologies have been discussed in detail in other chapters
of this book, this chapter will focus on e-supply chain management principles,
approaches and methodology.
1 Introduction
Supply chain is a series of business processes in which products or services are
produced and delivered to customers through value adding activities
implemented by involved parties. In a manufacturing supply chain, the value
WIT Transactions on State of the Art in Science and Engineering, Vol 16, © 2005 WIT Press
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adding activities mainly include product development, product design, raw
materials supply, manufacturing the product, product packaging, delivery to
customers, and post sale services. Supply chain management for a manufacturing
company refers to incorporating its manufacturing process to all value-adding
activities implemented by parties who add values to its final products. The term,
supply chain, is a simplified description for vertically related business processes.
Nowadays, it is more frequently referred as supply networks or supply chain
networks because a company is likely to be involved in more than one supply
chain and the related companies form business networks.
Since information technology became an enabler of improving business
processes, supply chain management has gained tremendous benefits from
applying ICT to various aspects of its tasks. IT application moves from data
management to control automation, and then moves to enterprise integration.
Supply chains have advanced the last two decades with improved efficiency,
agility and accuracy. However, it was only at the time when the Internet
technology became a practical means of information exchange in industries, that
supply chain management started changing its way of allocating and controlling
resources across organization boundaries. When business activities of a company
are electronically incorporated in value-adding processes throughout the supply
chain, e-supply chain management becomes a new term that distinguishes itself
by Internet-supported, net-centric and real-time features from traditional supply
chain management. In this chapter, principles, methodologies and examples of e-
supply chain management will be discussed in the following sections.
2 Principles of e-supply chain management

The fundamental challenge for supply chain management is how to efficiently
integrate and optimize supply chain operations with dispersed marketplaces and
characteristic demands using the latest advances in information technology. e-
Business using Internet technology to facilitate information exchange and
communication in business networks has emerged as an innovative approach
further exploring value-adding opportunities in supply chains. The e-business
approach plans and executes front-end and back-end operations in a supply chain
using Web-based applications [1]. Incorporating e-business approach in supply
chain management has been proved as a competitive method for increasing
values to be added and improving process visibility, agility, speed, efficiency,
and customer satisfaction.
e-Supply chain refers to the business activities that incorporate e-business
approaches into supply chain processes. e-Supply chain management involves
applying e-business technologies to assist and optimize value-adding activities in
supply chains. A more detailed definition of e-supply chain management can be
found in the description of Norris et al. [2]:
“Electronic supply chain management (e-SCM) is the collaborative use of
technology to enhance business-to-business processes and improve speed,
agility, real-time control, and customer satisfaction. Not about technology
change alone, e-SCM is about culture change and changes in management
policy, performance metrics, business processes, and organizational structures
across the supply chain.”
A key feature of e-business equipped supply chain management is network-
centric. This focuses on connectivity, co-operation, co-ordination and
information transparency. Networked supply chain partners share information,
knowledge and other resources in real time. The networked relationships change
the traditional supply chain information flows from linear transmission to end-to-
end connections, i.e. information can be transferred directly from any partner of
the supply chain to another partner without distortion and delay. Figure 1 shows
a simplified traditional supply chain structure and a networked supply chain
structure.
(a)
Second-tier Manufacturing &

Second-tier First-tier
First-tier Other core-value Distributors Customers
suppliers Distributors Customers
suppliers suppliers
suppliers -adding activities
(b)
First-tier
First-tier Packaging
suppliers Packaging & &
suppliers distributors
distributors
Manufacturing &
Other core-value
-adding activities
Upstream
Upstream Customers
Customers
suppliers
suppliers
Information flows
Physical product flows
Figure 1: (a) Traditional supply chain structure.

(b) Networked supply chain structure.
This networked information transfer provides transparent customer demand
information to any part of the supply chains. Impacts of information
transparency on supply chain operations are not only in shorter leadtime and
leaner production, but more importantly, changes in the way that supply chain
partners collaborate. Partnerships are built on enhanced mutual trust and
interdependency [3]. Based on the principle of network-oriented organizations
[4], supply chains in an Internet-enabled environment should be managed by
concentrating on their core business competence and contact with other partners
for the other functions; sharing common goals of the supply chain and operating
as an integrated system; co-operating with each other based on co-operative
norms and solving conflicts; and recognizing and relying on interdependence of
resources. In this section, the main principles of e-supply chain management
will be described.
2.1 Adding values to e-supply chains
Manufacturing supply chain management should focus on maximizing values

added to products to be delivered to customers. The value-adding activities form
a value chain which connects a company’s supply side with its demand side to
transform concepts and materials to final products.
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Figure 2: Value-adding activities of an e-supply chain.
Traditionally, values are mainly added by primary supply chain functions,

such as inbound logistics, production, outbound logistics, sales and post sale
services. Information systems, finance and human resource management are
supporting activities which are input and infrastructure of the primary activities
[5]. Incorporated with the e-business approach, supply chains have now been
enhanced with more efficient value-adding capabilities and new business
models, e.g. more agile manufacturing processes due to visible real-time
demands of end customers and virtual integration of manufacturing with retail
store controls, etc. The information systems are therefore key activities for
adding value to e-supply chains. Figure 2 describes the value-adding activities of
an e-supply chain. In networked e-supply chains, information flows are
integrated by ICT, particularly the Internet technology. Supply chain members
are directly connected with customer demands and real-time operational
information of all supply chain stages. This leads to synchronized supply chain
planning and co-ordination, with more efficient physical product flows.
2.2 e-Supply chain management focused on core competence
An enterprise should concentrate on the core competence of its business in e-

supply chains. Focusing on core competence will maximize value creation for
both the enterprise itself and the whole supply chain while maintaining flexibility
in uncertain markets.
Internet technology is able to facilitate implementation of this strategy as
information exchanges and business interactions can be more easily realized
between partners. This strategy can either be applied to the virtual enterprise
strategy discussed in the next section, or to long-term relative stable supply chain
partnerships. Outsourcing non-core value-adding activities takes advantage of
flexible and agile enterprise structures or dynamic enterprise formation. With the
assistance of Internet technology, it becomes possible to dynamically organize a
virtual enterprise based on either short-term or long-term partners. According to
traditional transaction cost theory, decisions on organizational structure and
make-or-buy should be made by balancing costs of managing inter-
organizational relationships and costs of maintaining internal operations. In
today’s competitive marketplace, agility is a key competency of manufacturing
companies for satisfying varying customer requirements. With the advancement
of Internet technology, costs of managing inter-organizational relationships have
decreased. The strategy of focusing on core competence is therefore the logical
option for forming an agile organizational structure and implementing mass
customization strategies.
2.3 e-Supply chain integration
Supply chain integration ensures a supply chain operating seamlessly as an

extended enterprise. The integrated supply chain will facilitate agility, shorten
leadtime, and reduce operation costs. The integration implies that supply chain
operations (e.g. product development, materials supply, product manufacturing,
assembly, packaging, delivery, stock control, and customer support, etc.) are
synchronized with virtual enterprise planning which aims at integration and co-
ordination of the supply chain operations. It is obvious that supply chain
integration focuses on information system integration instead of organizational
integration. It is Internet-enabled technologies that makes supply chain
integration practically feasible and efficient. An e-supply chain is actually an
integrated virtual enterprise. e-Supply chain integration ensures that supply chain
legacy systems and operational systems are seamlessly incorporated into a
networked business environment connected through the Internet and other
information and communication facilities. e-Supply chain integration is at
different levels with different focuses.
2.3.1 Synchronization-oriented integration

With synchronization-oriented integration, supply chain partners are fully
connected in a business network. Transaction information such as retailer’s sales,
stock level at stores and depots, manufacturer’s finished products in stock, work
in progress, etc., is visible to or directly assessed by other partners. The real-time
transparent operational information is then used in each partner’s synchronized
operational planning to avoid demand distortion, reduce leadtime, and increase
responsiveness. The integration focuses on efficiency and agility by improved
connectivity and transparency.
2.3.2 Co-operation-oriented integration

With co-operation-oriented integration, the transparent information is used not
only for reducing costs and increasing agility, but also for improving co-
ordination and joint decision support in a supply chain. Partners share the real-
time information and convert it into knowledge for joint decision making, e.g.
joint demand forecasting, product pricing, promotion planning, and new product
development, etc. The integration focuses on co-operation and decision-making.
An example of supply chain integration is collaboratively using retail sales
information by Safeway UK (a retail company) and its suppliers in a retail
supply chain [6]. Safeway developed a supplier information system with IBM to
provide real-time information of sales and stocks to its suppliers. The system was
built as an extranet which aims at fast availability of data to the retailer and its
suppliers to ensure visibility of demand changes and quick reactions. Benefits of
the extranet have mainly come from cutting out the wastage and storage costs
that follow on from over-ordering. In the first year of trial, Safeway saved in the
region of £700,000. The suppliers have been involved in the co-operative supply
chain management project by proactively integrating their information systems
with Safeway’s supplier information system. It has been reported that proactive
use of the transparent information from Safeway has led to even higher profits by
co-operative forecasting and planning.
2.3.3 Innovation-oriented integration

The Internet equipped supply chains do not only obtain benefits from the
visibility of supply chain operations, but also create new business models. For
instance, ordering digital products can be automatically processed on-line and
delivered to customers through the Internet without any intermediary services.
The seller-side e-marketplace provides customers with 7 days a week and 24
hours a day services. The Web enabled direct access to product catalogues and
interactive interfaces allowing customers to configure their preferred products
on-line. The e-business approach facilitates the mass customization strategy by
dynamically planning production based on real-time and large-quantity
customized orders.
2.4 e-Supply chain co-operation
Co-operation is a strategic term in supply chain management. It is an important

factor for supply chain success. Research from various perspectives has been
conducted to explore the impacts of co-operation and opportunism on supply
chain partnership success [3]. Key factors which positively affect partnership
outcomes have been found, such as interdependent organizational structure, co-
operative attitude, normative contracting format and behavior transparency, etc.
2.4.1 Partnership and co-operation

In traditional supply chain management, a long-term relationship has been
strongly encouraged to take advantage of mutual trust, resources and knowledge
sharing within this stable relationship. The attitude of the partners is crucial. For
instance, when a refrigerator manufacturer enters a new market, local retail
partners are crucial to its success. The interdependence between them is not
symmetric. It will be beneficial for the retailers to exchange consumer feedback
with the manufacturer, be actively involved in the product design process, and
share sales information with the manufacturer for supply planning and inventory
control. However, to take advantage of its dominant role in the chain, it is also
possible that the retailer opportunistically tries to lower the refrigerator
purchasing price from the manufacturer, and disguise real sales information for
bargains. This harms the manufacturer’s business and reduces profit for the
retailer as well in long run. If the refrigerator brand becomes popular one day,
the manufacturer may in turn become the opportunist. Even in a symmetric
interdependence situation, without any intention of co-operation, opportunism
can also happen. Therefore, building partnerships based on mutual understanding
and trust is a key step for working co-operatively in supply chains.
2.4.2 Information exchange and co-operation

To encourage co-operation, besides interdependency, information exchange and
perception of partners’ co-operative behavior are also key enabling factors [7].
Frequent exchange of operational information facilitates perception of partners’
attitude and behavior. It increases trust. Disclosing operational information to
partners has been named as a co-operative strategy - information transparency.
The benefits of information transparency have been broadly recognized, such as
reduced information distortion, earlier problem detection, quick response to
changes, increased mutual understanding and trust [1]. With the advancement of
Internet technology, information exchange can be easily implemented through
Internet-based applications. This has significantly enhanced information
transparency in supply chains.
2.4.3 Virtual organization and co-operation

As the result of Internet-based technologies, organizations can be dynamically
connected as virtual enterprises. Based on shared resources, remote process
control, and real-time demand information as a result of an e-business approach,
supply chain partners may be dynamically organized in a virtual enterprise
(details are discussed in the next section) against active customer requirements.
Partnerships may not be as stable as those with traditional supply chain
management technologies. This can have a negative effect on trust and co-
operation. However, the transparent information can, to some extent, offset this
drawback. In dynamically formatted e-supply chains, participants position
themselves by incorporating their core competences into the business network.
Real-time operational information can be easily accessed through extranets. This
allows participants to easily perceive mutual benefits and collaborative activities.
It therefore facilitates co-operation in e-supply chains.
2.5 Managing e-supply chains as virtual enterprises
By applying an e-business approach, at least part of supply chain operations can

be implemented through Web-based information systems. This implies that the
supply chains are at least partly virtual, i.e. not physically, or by common
consent, existing. They may operate as a virtual enterprise (VE) with Internet
technologies which govern and co-ordinate networked supply chain transactions
efficiently with lower costs. The characteristic “virtual” creates opportunities to
improve flexibility, agility and efficiency for e-supply chains. A virtual
enterprise can be defined as “a temporary alliance of enterprises that come
together to share skills or core competencies and resources in order to better
respond to business opportunities, and whose Co-operation is supported by
computer networks” [8].
2.5.1 Properties of e-supply chain virtuality

The most relevant properties of virtuality to supply chains are virtual
environment, virtual aggregation, and virtual organization [9].
2.5.1.1 Virtual environment Internet has been applied to developing various

applications to support e-supply chain management. The applications provide a
virtual environment for partners and customers to exchange information and
complete transactions. The virtual environment can be created at any supply
chain stage.
For instance, a retailer’s e-marketplace provides a virtual environment for
consumers to access to product catalogues, ordering preferred products and
completing transactions. Tesco Supermarket on-line is a Web portal through
which customers can order commodities in a catalogue and complete
transactions on-line. The portal also provides financial services for customers
and allows customers to customize the Website according to their preference.
Such a Web portal is a seller-side e-marketplace which is a virtual environment
for downstream supply chains to directly connect retailers with end customers.
Web-based applications can be developed as a virtual environment for
manufacturing control. It can be used to monitor and control a manufacturing
process and provide product design services, etc. Wiptrac.com is a Web based
manufacturing control system. It monitors shop floor manufacturing processes
and control product qualities. Engineers can review process and quality control
charts in real time. According to the on-line information, manufacturing process
can be remotely monitored. Alarms demonstrated by the system can be
responded to in real-time. Processes can be shut down when they are out of
control. For an enterprise with distributed manufacturing sites, a virtual
environment of manufacturing control works as a virtual control centre to
synchronize the distributed manufacturing processes.
OneSpace Collaboration is anther example of virtual environment that allows
engineers to work interactively in a team. It supports collaboratively loading,
viewing, inspecting and modifying product design models and drawings. The
system virtually integrates distributed design teams to view and share documents
and drawings, mark up data, capture issues and ideas by marking up models and
documents, make and document decisions, schedule meetings and automatically
generate email invitations to participants. The application works as a virtual
department of product design connecting supply chain partners to sharing
knowledge.
2.5.1.2 Virtual aggregation and integration When all of the supply chain
functions are integrated by various e-business applications, the whole supply
chain virtually operates as a vertically integrated enterprise. The distributed
operational processes in different companies can be aggregated and synchronized
based on end customer requirements. Workflows or business processes (BP) are
controlled by Web-based systems which make the whole process visible to all
involved partners. The workflow can be automated to some extent through
multiple agent systems without or with limited human interactions.
2.5.1.3 Virtual organization Virtuality in the virtual enterprise context

emphasizes virtual organizational structures. A supply chain can be formed
based on particular customer requirements and may be reconstructed later
according to different requirements. The advantages of dynamic structures of
virtual enterprises are the best combination of core competence of participants,
flexible value-adding capabilities, and agile processes to serve demand changes.
Internet technology makes it possible that e-supply chains can be formed
dynamically, for instance, a brand product manufacturer outsourcing components
in manufacturing, assembly, packaging and delivery services. It remotely
controls and integrates the distributed processes as a virtual enterprise. With
varied customer requirements, the virtual enterprise can be dynamically
configured through combining core competence from different partners. Figure 3
illustrates a VE creation case [10] for implementing four business processes
(BP1, BP2, BP3 and BP4) with eleven potential VE members (E1 to E11) and
three potential VEs (VE1, VE2 and VE3). VE1 is the selected team for given
business objectives.
Figure 3: Virtual enterprise formation (Source: [10]).
2.5.2 Functions of virtual enterprise

Functions of a virtual enterprise can be summarized as customer interaction,
asset configuration, knowledge leverage [9] and virtual process co-ordination.
2.5.2.1 Virtual customer interaction This function concerns customer service

activities including information publishing, virtual marketing (on-line
advertising, on-line-retail, on-line distribution, on-line payment), customer
relationship management (service customization, interactive communication),
community marketing (forms a many-to-many communication environment as a
virtual community). Implementation of virtual customer interaction is the most
common business-to-customer e-business application. Examples of such
applications can be found at Amazon.com, Dell.com, Safeway.com, etc.
2.5.2.2 Virtual asset configuration This function concerns virtual enterprise

formation based on a business opportunity. Through Internet-based applications,
potential partners can be found, consulted, negotiated, and contracted. The
enterprise asset should be dynamically configured based on customer
requirements. Asset configuration is also referred to virtual sourcing.
2.5.2.3 Virtual knowledge management With e-business applications,

knowledge can be more easily shared through intranet, extranet and other
information systems. Experts or knowledge of specified domains can be accessed
through the Internet when it is necessary. This is very important to supply chain
co-operation as the barriers in distance and time prevent partners’ collaboration
in complex engineering and operational issues. Transferring knowledge on-line
makes it possible for partners to solve problems and conflicts responsively.
As a virtual enterprise approach for cutting stock applications proposed by
Gary [11], complex models and tools for optimizing the material’s size, product
designs and then cutting plans are developed into a Web-based system which is
assessable on the extranet by partners. Suppliers, manufacturers and customers
can be linked by the system which functions as a broker. The system is
particularly valuable for SMEs which do not have the capability to develop or
purchase such complex tools. The manufacturers who need to optimally cut the
materials for product processing can consult the system interactively for cutting
plans based on given materials. In this process, suppliers and customers are also
likely to be involved by co-operating in the optimal overall solution for the
material’s size, product specifications and cutting plans. The partners work
together to share the knowledge of operations optimization.
2.5.2.4 Virtual process co-ordination The dynamically organized workflows

should be planned, executed, controlled and monitored co-ordinately. A
dominant enterprise may play the role of a co-ordinator in a VE operation. The
co-ordination is more centralized in such a situation, e.g. the automobile
manufacturing companies and their suppliers. In a VE with members of equal
power, rules of co-ordination need to be negotiated and agreed in a more
democratic manner, e.g. networks consisting of small retailing companies,
packaging companies and commodity manufacturers.
3 Methodology and tools for e-supply chain management

The Internet technology has fundamentally changed the way in which supply
chain partners communicate and co-ordinate with each other. Internet
technology, to some extent, virtually removes the geographical distance and time
lags of transactional processes between distributed supply chain partners.
Telecommunication networks, electronic data interchange (EDI), particularly the
recently dominant Internet technology, enables supply chain partners to
exchange data in real time across organizational boundaries. The World Wide
Web (WWW) built on Internet provides standard interface between users and the
computer networks, and facilitates information transfer by standard mark-up
language (HTML, XML) and graphical user interfaces (GUI). The advance of
ICT has not only contributed to improving supply chain performance, but also
created new business models and technologies of supply chain management. In
this section, the basic information technologies and approaches to applying the
technologies to support e-supply chain management will be described.
3.1 Application scenarios of the Internet technology to supply chain
management
With applications of the Internet technology, e-business and virtual enterprises

have emerged as innovative collaborative business strategies from which supply
chain management has gained significant benefits from increased communication
capability, agility, dynamic and real-time information exchange. Internet-based
tools have already been intensively explored for information management,
supply chain management and virtual enterprise modeling [9][12]. To enable e-
business implementation for supply chain management, companies with a
network of suppliers, vendors, and distributors need a fast, efficient way to
disseminate information, provide interactive communications, and dynamically
invoke co-operative business processes through Web-based applications. The
major components required for such applications are customized extranet, Web
servers and relevant middleware, database systems and groupware as integrated
collaborative systems. A key objective is to provide clarity to supply chain
partners by the Web-enabled legacy systems and to integrate a company’s
business processes with supply chain processes.
Internet technology applications for supply chain management can be
summarized in four categories [13]. The different scenarios of the Internet
applications have different focal points on e-supply chain management.
3.1.1 Information publishing

Information publishing is one of the basic functions of e-business applications.
Internet is applied to supply chain management for providing one-direction
information without receiving feedbacks and interactions. This application
category is usually aimed at reaching partners to make operational processes
transparent and marketing the organization to attract customers. Information can
be accessed by customers and supply chain partners in real time without time
delay. CircuitWorld Online Services is an on-line electronic manufacturing
guide. Electronic manufacturers register and publish their products with this
service. Customers of electronic circuit products can use the Web-based service
to search for preferred products, manufacturers and distributors. Such an
application assists manufacturers directly reaching customers for their marketing
purposes.
3.1.2 Interaction support

Most of the present Web-based applications provide more than just mere
information publishing. They normally support interactive activities for
knowledge and information exchanges. In this scenario, Web-based applications
support interaction among supply chain partners and focus on providing Web
services to users according to user requests. Information delivered to users
through the Internet is therefore dynamic, specific and interactive. This type of
two-way communication system was developed for information and knowledge
exchanges, negotiation of business proposals, joint decision making, monitor and
control business processes, etc. Examples of tools for such purposes are email,
groupware, video conferencing, on-line industrial communities, forums for
information exchange, remote processes control and monitor systems, etc.
Through such applications, customers can pursue on-line services from
manufacturers. Supply chain partners can share information and knowledge, and
obtain particular services from registered communities.
3.1.3 On-line transaction

In this scenario, Internet technology is used for interactive implementation of
transactions. The applications not only perform information exchanges, but also
combine information flows with cash flows and instructions to physical supply
chains. Interactive on-line processes will lead to actual transaction
implementation within a supply chain. An example of this type of application is
Dell Computer Corporation’s e-commerce implementation. On-line services are
provided by Dell for receiving customized orders and scheduling manufacturing
to order. Customers can specify their requirements and complete transactions on-
line. The system distributes the orders to relevant regional manufacturing sites
for production and delivers final products to customers. The Website interface of
the system is illustrated in Figure 4.
3.2 Information systems for e-supply chain management
A supply chain system is a work system implementing business transactions,

product transformation, process co-ordination, and movement of goods through
raw materials suppliers to final product consumers. The information flows are
managed by information systems relating to the supply chain functions. In an e-
supply chain, information systems supporting supply chain operations are likely
to be incorporated with advanced ICT and Internet technologies such as intranet,
extranet, Web services, Web portals, agent-based business automation
technologies, wireless networks, etc.
3.2.1 Development history of supply chain information systems

At the early stage (1960s to 1970s), supply chain information systems focused on
materials supply control, inventory management and production scheduling. It
internally integrates system output (customer orders and finished products),
transformation process (scheduled production) and system input (materials and
purchasing orders) as a synchronized supply chain process within a company.
The system was named materials requirement planning (MRP). MRP schedules
production according to received orders over a period of time. Based on bill of
materials (structure of products describing relationships among products,
components and materials), each manufacturing job can be determined in
quantity and time. Then inventory levels and dates of purchasing raw materials
can be derived. In the 1980s, MRP evolved to a manufacturing resource planning
system by including production planning, inventory control and logistics
(distribution) planning functions. It integrates almost all primary value-adding
activities in a company.
Figure 4: Dell Computer on-line ordering Website (Source: Dell.Com).
In the 1990s, MRP II was further evolved to enterprise resource planning

(ERP) systems. ERP is a more standard enterprise system and controls all
enterprise resources. It is a standard, fully computerized enterprise-wide
information system with best practice model and modularized structure. ERP
integrates enterprise resources by building a coherent information repository and
centrally manipulating operational data in all business aspects. The business
processes controlled by ERP are integrated within and across business functional
areas so that the enterprise operations can be automated to some extent.
As principles and methodologies of supply chain management advanced from
traditional internal orientation to partnership development in the 1990s, more
opportunities for reducing costs, improving product quality and agility have been
expected from integrating internal business processes with external processes. As
the result of this change, ERP systems have been further developed to embrace
supplier relationship management (SRM) and customer relationship management
(CRM) functions. This extension broke through organizational boundaries and
provided an enterprise with integrated workflow information over a supply
chain.
In the past decade, the Internet has been a promoter of the ICT evolution.
Supply chain management technologies have been significantly affected by such
an evolution. Information systems supporting supply chain management are
moving from enterprise oriented systems to open systems for all participants
without location, distance and time limits. Web-based supply chain information
systems integrate enterprise systems of supply chain partners into a synchronized
workflow which is planned according to end customer demands.
The Web-based integration is characterized by “dynamic” and “real-time”.
The connected supply chain members may change from time to time. All supply
chain activities exposed to the Internet will be transparent to partners with real-
time status. Although a supply chain can be dominated by a product/service
brand owner, the e-supply chain system is frequently a network of enterprise
systems instead of a system hosted by a single enterprise, i.e. the planning
process is implemented co-operatively by supply chain partners. Figure 5 shows
the development history of supply chain systems.
Distributed & dynamic on-line E-Supply chain

resource management planning
+
Extended
SRM CRM enterprise
planning
+
Finance planning
Marketing & Sales Human resource ERP
MRP II
Production planning Distribution
Purchasing Inventory control

MRP
Production scheduling
Figure 5: Development history of supply chain planning information systems.
3.2.2 Infrastructure of information systems for e-supply chain management

An e-supply chain system is networked information systems which serve
different value-adding activities for different supply chain partners. Typical
information systems in e-supply chains include:
• Communication systems (CS)

• Transaction processing systems (TPS)
• Management information systems (MIS)
• Executive information systems (EIS)
• Decision support systems (DSS)
• Enterprise systems (EPS)
(a)
Logistics Finance/Human Sales/
Manufacturing
resource Marketing
Desktop
Desktop Desktop
Desktop Desktop
Desktop Desktop
Desktop
PC
PC PC
PC PC
PC PC
PC
Printer
Printer Printer
Printer Printer
Printer Printer
Printer
Laptop PC
Laptop PC Laptop PC
Laptop PC Laptop PC
Laptop PC Laptop PC
Laptop PC
TPS
TPS TPS
TPS TPS
TPS TPS
TPS
OAS
OAS OAS
OAS OAS
OAS OAS
OAS
……
…… ……
…… ……
…… ……
……
(b) Finance/Human Sales/

Logistics M anufacturing
resource M arketing
Desktop PC
Printer
Laptop PC
ERP
ERP
TPS
TPS TPS
TPS TPS
TPS TPS
TPS
OAS
OAS OAS
OAS OAS
OAS OAS
OAS
…. .
… …. .
… …. .
… …. .
…
Operational Database Data warehouse
Figure 6: (a) Function focused enterprise information system infrastructure.

(b) Process driven, customer focused enterprise information system
infrastructure.
Theses information systems support different business functions within or

between organizations. The systems can be a stand alone, client-server based,
Web-based or part of wireless networks. Computerized information systems
were firstly applied to accounting and finance management, and office
automation functions. Computers were later used in other business functions,
such as computer aided product design (CAD), numerical control and computer
aided manufacturing (NC, CAM), etc. However, the computerized systems from
early times are generally isolated, working for different business functions. For
instance, transaction processing systems may be used in a company in different
departments. The operations department uses a TPS for processing product
requirements, monitoring productions, recording job start and finish dates, etc.
At the purchasing department, a TPS is used for issuing purchasing orders,
control materials stocks, processing materials requisitions, etc. Product data is
stored and processed at both of the departments for different purposes. Such an
infrastructure of information systems does not only waste system resources due
to data redundancy, but also leads to possible inconsistency of the same data in
different departments due to human errors. More importantly, this disconnection
reduces operational efficiency in an enterprise due to information transfer and
interpretation between the systems. This disconnected infrastructure is function
focused. The infrastructure later changed to process driven, customer focused for
integration of internal business functions. Such an infrastructure improves
process efficiency by reducing information transformation costs and time. The
information systems share integrated company-wide data sources and process
transactions by automatically updating all related changes in all functional
departments. The process driven infrastructure aims at responsive customer
service and efficient co-ordination. This integrated network of information
systems with company-wide database systems forms the integrated enterprise
system. Figure 6 describes the infrastructures of information systems in an
electronics manufacturer.
An early successful integration example of information systems was the point
of sales system (POS) which emerged in the 1980s. A POS manages sales
transactions at checkout counters with barcode and scanners. The system links to
sales and marketing systems for sales and customer management. Today,
information from POS has become a crucial information resource which is used
to connect retailer stores, depots, manufacturing plans and other upstream
suppliers with end customer demands. The information systems have therefore
been moved from functional focused to enterprise process driven, customer
focused, and then moving to supply chain process driven, end customer focused
infrastructure. e-Procurement and e-marketing systems for information exchange
and transaction implementation between buyers and sellers have been important
e-business approaches. They create new procurement and marketing channels to
automate e-supply chain operations. Figure 7 describes an e-supply chain system
infrastructure based on these technologies. e-Marketplace and Web portals are
strategic approaches and technologies to integrate business functions and collect
information for e-supply chain management. These approaches will be discussed
in detail in the following sections. As seen in Figure 7, the integration of an
enterprise system with customers and suppliers has alternative options, i.e.
through system integration or e-marketplace. For supply chain partners with
relatively stable relationships, the enterprise system may be integrated with a
partner’s enterprise system by sharing operational information and co-ordinated
planning and implementing supply chain transactions. For spot trading
transactions, an e-marketplace may be used to purchase or sell products.
Supplier Customer
relationship relationship
management management
Supplier
Supplier Customer
Customer
E-marketing
system
E-procurement
system System
System
system
integration
integration Enterprise
Enterprise integration
integration Customers
system
Suppliers
Suppliers Customers
System
System
E-marketplace
E-marketplace E-marketplace
E-marketplace
Figure 7: e-Supply chain information system infrastructure.
3.2.3 Communication systems

Communication systems facilitate people exchanging information and in
collaboration for affiliated tasks. The Internet is the latest development in
communication technology. The World Wide Web creates an open
communication system to the public through standard protocol and format for
information exchange. Technologies used in electronic communication systems
are email, voice mail, fax, teleconferencing, workflow systems, electronic data
exchange (EDI), Web-based systems such as instant messaging, chat rooms,
groupware, intranet, extranet, etc. [14].
3.2.3.1 Functions of communication systems Primary functions of

communication systems include:
(1) Obtain and exchange information between individuals or groups. These

are basic functions for all communication technologies. Some tools are
for one-way communication by sending messages or multimedia data to
business partners, such as fax, email, voice mail. The others are two-
way communication tools, such as teleconferencing, on-line chat room,
groupware, intranet, extranet. Web-based communication systems are a
key technology in e-supply chains for customers and supply chain
partners sharing information through which e-business strategies, new
marketing and procurement channels can be created.
(2) Share knowledge between users. With communication systems,
particularly intranet and extranet, supply chain partners share
knowledge of customer requirements, product development,
manufacturing technologies to solve problems and how to improve their
product quality.
(3) Facilitate decision-making. Efficient communication systems such as
teleconferencing, or knowledge management systems facilitate decision
making using enriched information from customer, manufacturing
processes, etc. Grid computing as a new Internet technology facilitates
application outsourcing, e.g. remotely run optimization applications at a
service provider or at a partner’s application server with spare time and
capacity. Such a virtual application integration provides great
computing and decision making capability which is not available to
every company.
(4) Facilitate co-ordination between users. Internet technology has provided
low cost, flexible and convenient communication tools for obtaining
and exchanging real-time, dynamic information. As a result of this,
information transparency as a new supply chain management
philosophy has greatly improved supply chain co-ordination. The
transparent information can make both operational and decision making
processes visible to supply chain partners to some extent. It helps
planning synchronization and joint decision making.
3.2.3.2 Types of communication systems These include:
(1) Teleconferencing. It includes audio teleconferencing and video

teleconferencing. It electronically transmits voice and/or images at a
same-time, different-place meeting for remotely exchanging real-time
information. It supports more than two groups of people
communicating.
(2) Email, voice mail, and Fax. They are electronic transmission of
messages.
(3) Instant messaging, chat room and news groups. They are Web-based
information exchange tools for flexible individual interactions. This
facilitates on-line discussion and sharing knowledge.
(4) Groupware. It is the software for sharing information within a work
group on the Internet. Lotus Notes is a prominent product in this
category for sharing text and images by team members [14].
TeamNow.com provides a tool supporting storage, update and sharing
of documents via the Internet. Some groupware has been developed into
more complex tools than merely exchanging information. These are
used for workflow control which monitors and co-ordinates multi-step
tasks (sequence control) by team members in disparate places. This
category of tools may also be considered for transaction processing
systems.
(5) Intranet and Extranet. They are communication systems built on the
Internet and are a specialized control for private use. Intranet is part of
Internet, built on a local area network (LAN) and behind a firewall. It
can only be accessed by the LAN users. Extranet is an extended
intranet, with data encryption and other security control technologies,
built on a wide area network (WAN). It can only be accessed by
authorized users on the Internet. Unlike specialized groupware, intranet
and extranet provide a flexible communications environment for a large
group of users for exchanging information as well as running various e-
business applications.
(6) Knowledge management system – communication systems for sharing
and finding knowledge among employees or/and partners. Knowledge
is the understanding of a specialized field through study, or experience
through accumulated information, e.g. a computer system trouble-
shooting advisor shares his experience with the developer and
customers to solve problems in software.
3.2.4 Transaction processing systems (TPS)

TPS is an information system to monitor and control transactions. A transaction
is a complete unit of a business process which processes all required changes
caused by an event. For instance, a transaction for delivering a customer order
will probably include a series of tasks – schedule the delivery and notify the
customer, record the order as delivered in the customer order lists, remove the
delivered products from stock. These tasks will be implemented as an “atom” in
a workflow by a transaction system with an integrated enterprise database.
TPS collects and stores data of transactions, and manages concurrency and
recovery with technologies such as serialized schedule, locking, transaction logs,
two-phase commit, etc. Transactions may be completed by transaction systems
interactively with people. Some transactions may be automatically implemented
without human intervention. Transaction systems are therefore built with
workflows, business rules, autonomous software agents and appropriate
interfaces for monitoring and execution. POS is a typical TPS. It receives
product sales data from scanned barcodes. The product codes are used to retrieve
product details automatically from the enterprise database. Then, total costs will
be calculated. A receipt will be produced. Payment will be recorded into the
accounting system through the integrated database. The checkout data will also
trigger a series of updates for stock level changes, sales data changes, etc. As
seen in this example, database systems are the back-end of transaction
processing systems for implementing tasks. Tools for transaction processing are
primarily evolved from database management systems, e.g. Oracle, Sybase,
DB2, and many other database products. Today, many of these database-oriented
tools have already been developed to include integrated company-wide
transaction processing functions and appropriate user interactions which make
them actually enterprise systems. A dominant tool, e.g. Oracle 11i, is actually an
integrated enterprise system with Web-enabled functionalities supporting e-
supply chain management.
To adopt e-business strategy, many TPS have been developed in three-tiered
architecture:
(1) Database systems as the back-end for implement transactions;
(2) Intermediary layer for processing business rules, transmitting data in a
platform-independent format such as XML and connecting Web with
databases by middleware using server-side scripting languages, such as
.NET, ASP, JSP, Coldfusion, PHP, etc.;
(3) Presentation layer as the front end for interacting with users on the
Internet in standard HTML format and processing data by client-side
scripting languages such as JavaScript, VBScript.
With three-tiered architecture, transaction systems can be deployed over

distributed geographical locations and business objects (e.g. data sources,
transaction interfaces with different workflows) which can be virtually
integrated. e-Supply chain approaches such as e-procurement, e-marketing and
other Web-based transaction processing functions can be implemented on
Extranet and Internet as seen in the Dell.Com example in Figure 4.
Workflow management systems are more advanced transaction processing
systems. They do not only implement transactions, but also manage business
processes. They can be used to control distributed applications such as co-
ordinated supply chain planning and distributed manufacturing control, etc.
Workflow systems as business process management tools will be discussed in
Section 3.4.
3.2.5 Management information systems (MIS) and executive information

systems (EIS)
MIS is designed for monitoring and analyzing operational data based on
performance indicators to provide performance information for organization
management. MIS works with TPS to extract and aggregate transaction data for
performance reports. A frequently produced outcome of MIS is the sales report
of an enterprise. The report demonstrates sales results by company, store, region,
time period, product category and so on, so that business performance can be
monitored and problems can be found and dealt with. EIS is a type of
information system with similar functions. However, it provides flexible and
interactive access to performance information for executives of an enterprise. It
provides interactive system interfaces to users to produce reports based on users’
requirements. For e-supply chain management, such information needs to be
presented on Web interfaces so that e-business partners and distributed enterprise
sites can monitor real-time supply chain performance. For instance, Compuware
OptimalView as an e-business portal enables plug-in of dynamical MIS output in
MS Excel format on the Web browser.
3.2.6 Decision support system (DSS)

DSS are interactive information systems that provide information, models, data
manipulation tools for decision making with semi-structure or unstructured
information. Decision support technologies include simulation, optimization,
multi-dimensional data analysis (e.g. on-line analytical processing, OLAP), data
mining, expert systems, neural networks, intelligent agents, etc. Although all
conventional decision support technologies can be used for e-supply chain
management, with Web-based applications, decision support systems are
particularly required to equip on-line, responsive decision-making with real-time
information. To achieve such an objective, decision-making models can either be
embedded into Web-based applications, or be virtually integrated into a supply
chain system by application integration technology or outsourcing. For instance,
data mining tools can be imbedded into enterprise portals, which is an integrated
Web site to interact with suppliers or/and customers, to recognize customer
behavior patterns and find business opportunities by automatically collecting and
analysing received data from portal users. Another example is outsourcing on-
line decision-making services [15]. Small manufacturing companies lack
computation facilities for optimizing their operations. One of the issues is
optimising materials by cutting operations to reduce costs at the pre-
manufacturing stage. By outsourcing on-line optimization services,
manufacturers can obtain responsive service from application service providers
(ASP).
Technologies of the conventional decision support system can be classified as
model intensive approaches, data intensive approaches and knowledge intensive
approaches.
Model intensive DSS can be found in the category of simulation tools and
optimization tools. Data intensive DSS includes data warehouse, OLAP and data
mining. Knowledge intensive DSS is based on artificial intelligence technologies
which include expert systems and case-based reasoning, neural networks, fuzzy
logic, and intelligent agents.
It has been expected that the next generation of e-business will focus on
optimization and automated negotiation [16, 17]. Decision support systems are
crucial to optimize e-supply chain operations and to automate co-ordination
activities. Current e-business approaches applied to e-supply chain management
are still transaction oriented. They focus on improving supply chain visibilities
and implementing on-line operations instead of support decisions. More and
more decision support functionalities are expected to be integrated with current
e-business technologies in the near future to facilitate e-supply chain automation
and optimization.
3.2.7 Enterprise systems (EPS) in e-supply chains

EPS is an integrated information system that deals with entire enterprise
transaction processes and an integrated database. It transforms data in company-
wide business processes into an integrated consistent information resource. As
indicated in Section 3.2.2, enterprise information systems were not integrated at
the early stages. It was only in the 1990s that enterprise systems become
company-wide “operational information organizers”. As enterprise systems
evolved from the manufacturing resource planning (MRP II) systems, they were
named as enterprise resource planning (ERP) systems. However, functions of
today’s ERP systems are far beyond resource planning capabilities. Current ERP
system vendors are integrating planning, transaction management, business
performance monitoring, and supply chain integration into their packages as well
as the Internet connectivity. As EPS is a major component of e-supply chains, it
is discussed in detail in the next section.
3.3 Enterprise resource planning system (ERP)
An ERP system is the hub of an enterprise [2]. It is an integrated multi-module

application software package. An ERP serves and supports multiple business
functions based on an integrated database system. It is a major component of e-
supply chains as it organizes value-adding activities in each enterprise and builds
connections of the enterprises with e-supply chain partners. Primary ERP tools
on the market are currently mainly by SAP, Oracle, Baan and PeopleSoft as
listed in Table 1.
Table 1: Major ERP commercial tools.
10-15 5-10 35+ 40+ 35 30 20
Source: Benchmarking Partners Inc.
3.3.1 Functions of ERP systems

Basic functions of an ERP system include execution, control, monitoring, and
analysis of business transactions. Initially, ERP systems are enterprise focused,
i.e. they are internally oriented. The functions of an ERP system include the
following aspects as described below [18].
3.3.1.1 Operations management An ERP system enables companies to

execute, control, monitor and analyze business transactions across all relevant
enterprise functional areas. Operations management of an ERP system covers an
enterprise’s major value-adding activities, i.e. procurement management,
inventory management, manufacturing management, maintenance and quality
management, delivery management, and sales management. Figure 8 illustrates
an interface of EPR sales order management.
Figure 8: An example of ERP sales order management interface (Source: [19]).
3.3.1.2 Financial management An ERP system helps a company to monitor

and control value creation from internal transactions and co-operative operations
in supply chains. It does not only maintain recorded sets of business transactions
in a financial format, but also reports on financial performance for analytical
applications. Financial management functions cover managerial accounting, and
manager self-services for manager access to all relevant business information.
3.3.1.3 Human resource management ERP systems support employee
development management, recruiting management, employee relationship
management, etc.
3.3.1.4 Performance analysis An ERP system supports strategic enterprise

management and operational performance analysis. Based on integrated database
systems, an ERP system enables companies to monitor and analyse business
performance in all business areas in the enterprise. The analytic function helps
executives and managers to identify problems and opportunities within and
beyond the enterprise. The analysis function focuses on making aggregated key
information, analysing profit and loss, market shares, forecast accuracy, delivery
reliabilities, fill rate to customer orders, etc. It can be seen that ERP systems
embrace functions of MIS and EIS.
3.3.2 Extensions of ERP systems

Currently, ERP systems have been extended to integrate external business
relationships and e-business technologies with internal business processes so that
business information and processes can be open to business partners, and
efficiency and agility of customer service can be achieved. In the collaborative
areas such as supply chain management, CRM, SRM, and product life cycle
management, ERP systems link enterprise business processes (workflows) with
supply chain partners by enabling global visibility of business information. As a
result, planning of supply chain partners can be synchronized through Web-
based communication and information exchange. Figure 7 has illustrated such
extensions. An example of the extension is integrating information in POS, CRM
with ERP systems. The primary data flows in the integration include:
(1) Products selected from supplier inventory directly into the different
departments of a retailer.
(2) Automatic polling of sales orders from the Web to supplier fulfilment.
(3) Transparent POS data and inventory data (shelf, store, depot) to
suppliers.
(4) Centralized data entry, for both inventory management and the e-
business catalogue.
(5) Consolidated customer history, tracking, and call centre services
integrated with personalized on-line services and knowledge
management tools leading to direct marketing.
(6) Synchronized customer order notification and stock availability
notification to customers and operations planning of an ERP system.
e-Business portal has been an important approach to providing an integration

interface for inter-organizational transactions processing and application
integration. A portal comprises enriched enterprise information and user
interaction interfaces connecting distributed e-supply chain operational
processes. The Web portals have been included in most of the commercialised
ERP tools.
3.3.2.1 Integration of ERP systems A main issue of ERP system

implementation is the complexity of supply chain networks, software and
hardware platforms, and various business applications. To allow various
technologies to communicate and co-ordinate efficiently, they need to be
integrated by standard protocols. Figure 9 describes today’s enterprise system
architecture.
Windows 95, 98, NT, 2000, etc

HTML
INTERNET
Web
Service XML
TCP/IP
Departmental Ethernet
Departmental
Subnet Subnet
Web
Server
HTML
SQL
Web
Server XML
Service
E-business TCP/IP
XML based Subnet, Portals Ethernet
Messaging & Internal
Web Service Backbone
TCP/IP
OR
Ethernet
.Net Server Java
Application
Unix ERP/RDBMS
Server
Applications
M/F CICS/DB2/etc M/F Adabas,
Adabas, Natural
Applications Applications
Figure 9: Enterprise system architecture today (Source: [20]).
3.3.2.2 Enterprise application integration (EAI) To enable different

application packages to communicate, applications within or in different
companies need to be integrated by standard, mutually understandable
intermediary software. There are three main streams of EAI standards, Common
object request broker architecture (CORBA), Distributed component object
model (DCOM), and Java 2 enterprise edition (J2EE). These standards enable
applications to communicate with one another and independently from software,
hardware platforms and locations (DCOM is for Microsoft Windows only).
Latest development of protocols on the Internet has been Web services with the
protocol named as simple object access protocol (SOAP) based on the
extendable markup language (XML). Web service standard has simplified
communication through the Internet and facilitated integration of enterprise
applications.
3.3.2.3 Integration with business process management The dynamics of an e-
business environment requires enterprise systems to manage business processes.
The enterprise business processes in a virtually integrated e-supply chain are
required to link e-supply chain partners, respond quickly to market variations,
support customized business logics, synchronize and automate transaction flows.
Business rules and processes designed into enterprise systems should be easy to
adapt to the changes of markets and enterprise systems.
Nowadays, business processes or workflow execution and control engines
have been integrated with some ERP system packages (e.g. Oracle, SAP, etc.) so
that business processes can be flexibly configured based on changes of internal
and external workflows of an enterprise. There are also specialized workflow
management tools, e.g. OptimalFlow from Compuware. The business process
management approach will be discussed in a separate section below.
3.4 Business process management in e-supply chains

Business process management (BPM) is a business-driven technology. BPM
provides the capability to present real-time status of business processes, and
updates the underlying processes to a dynamic e-supply chain environment.
3.4.1 Functions of BPM systems

Business process management systems handle business events and execute
business processes for automation, integration, and collaboration. A BPM system
enables modeling and continuous improvement of business processes, routing
information according to user-defined business rules [21].
3.4.1.1 Business process definition Through a BPM system, workflows in an e-

supply chain can be designed according to enterprise organizational structures,
roles of employees, routes of transactions, priorities of tasks, and rules of
implementing each transaction. Definition of workflows is the first step in
implementing a BPM system. To deal with changes, alternative transaction
processing paths or new procedures can be added into the system, and existing
workflows can be modified without changing any codes in database systems and
components of the BPM, unless new components need to be inserted. Some
BPM systems, e.g. Oracle Workflow, even allow modifications of the system
without interrupting active processes while the system engine is running.
3.4.1.2 Business process automation A BPM can automate execution of

distributed business tasks within and across an enterprise to some extent based
on the definition of the workflows. For interactive tasks which require human
interactions, the BPM system will load relevant interfaces and pass it on to
employees for processing, e.g. a received customer order for approval by a sales
manager. For automatic tasks, the BPM will process them based on business
rules, e.g. a received job order for automatic assignment to an assembly line.
3.4.1.3 Business process integration A BPM system links enterprise legacy
systems to the relevant business tasks in a workflow, and manages data sharing
between different applications and business tasks. Distributed tasks can be
remotely executed based on given locations and IDs of the tasks in the system
directory. Messaging services of a BPM system are based on open server
systems which support execution of processes with heterogeneous technologies
in different enterprises. The open server systems are normally Java
implementations or Web services for communications in the XML format.
Therefore, through the workflow engine and communication mechanism,
workflows and applications can be easily integrated across e-supply chains.
Figure 10 shows an example of a Web-based user interface based on a BPM
component for implementing an interactive procurement task. The interface is
derived from the BPM tool, OptimalFlow of Compuware Corp.
Figure 10: A user interface for a task from a BPM tool, OptimalFlow.
3.4.2 Business process modeling and business process management

The BPM approach has been evolved from the business process modeling
approach. A business process modeling approach firstly employs standard
modeling language, e.g. uniform modeling language (UML), to describe the
business process. Then, a data model is designed according to the business
model. Data flows and applications within and across the application
communicate with each other through messaging services. With the business
modeling approach, business process integration is implemented by data
integration plus open connectivity. This approach is an IT initiative task and
requires system modeling knowledge. The integrated system lacks flexibility to
changes in business processes. Systems development is facing the challenge of
increasingly complex software engineering tasks responding to environment
changes.
A BPM system firstly builds a business process (workflow) orchestration
model and then integrates data sources and business process components with
the orchestration model. The workflow engine data flows and applications
communicate with each other. With this approach, business process integration is
implemented by the orchestration of applications and data sources into a flexible
process which can be easily updated and extended. This approach improves the
e-supply chain’s agility and productivity, and reduces complexity of system
maintenance. The graphical user interface of BPM systems facilitates monitoring
process performance.
3.4.3 e-Supply chain portals for BPM

Some BPM tools developed Web-enabled work portals for workflow
management. Such tools provide a single access point to business process
applications and enterprise information. Figure 11 describes the portal-driven
BPM system architecture. With the Web portal, enterprises can more easily
extend and integrate applications and data sources. The portal improves
transparency of supply chain wide business processes and facilitates monitoring
enterprise and supply chain performance.
Figure 11: Portal-driven BPM system architecture (Source: [22]).
3.5 Approaches for e-supply chain management
The e-supply chain management technologies discussed above have provided

great opportunities to enhance supply chain management and develop new
business models for e-supply chain management. The IT-enabled approaches and
Web-based technologies have brought e-supply chain management with benefits
mainly in the areas of visibility or transparency, connectivity or integration, and
automation. Such benefits are consequently leading to potential improvement in
agility, flexibility, co-ordination, and optimization. The following approaches
facilitated by e-business technologies are beneficial to enterprises [2].
3.5.1 e-Procurement
Procurement is the activities to obtain items from suppliers including purchasing
and inbound logistics. e-Procurement is an Internet-based purchasing system that
offers electronic purchase order processing and enhanced administrative
functions to buyers (sometimes to suppliers as well, if the system is public
marketplace), resulting in operational efficiencies and transaction cost savings. e-
Procurement implements the procurement activities supported by ERP systems
and Internet technologies. e-Procurement can use either vendors’ Web-based
systems or the public marketplace to complete the transactions.
With a vendor’s e-marketing system, the enterprise can log-in to suppliers’
marketing Websites and search required products on e-catalogues. The approach
reduces time and costs for purchasing transactions. There is also an opportunity
to build co-ordinated supply chain planning between vendors and buyers.
Manufacturing and logistics can be synchronized with the procurement activities
when the vendor’s system provides transparent information about enterprise
manufacturing planning and stock levels of ordered items. The information helps
buyers planning their production and controlling stocks.
With a public e-procurement marketplace, e-procurement can be
implemented through the marketplace service. Buyers need to locate a vendor at
first, and then requisite quotes and raise orders on-line. This approach provides
an opportunity to further reduce purchasing costs and improve product quality by
expanded supplier selection base. However, closed co-ordination is more
difficult to build up due to the spot trading relationships between buyers and
vendors.
In a case of e-procurement with NC@YourService in US, a public Website,
NC E-Procurement@YourService, has been created as a state-wide marketplace
for suppliers and buyers. The Website is used to search for vendors registered
with the service. This service provides a way to search for vendors by vendor
name, vendor tax ID, vendor location, commodity code and construction code.
Search results provide detailed information about the vendor including whether
the vendor participates in the e-quote process. The e-procurement service
performs all procurement activities electronically, including requisitioning,
purchase order transmission, notification of electronic quotation requests and
electronic quote response for informal bidding, and receipt of goods. The
automated transaction processing reduces order cycle time and transaction costs.
Another example is a Web portal, industry2industry (www.ind2ind.com),
developed as an e-marketplace of e-business (B2B) on-line trading for
chemicals, plastics and energy. The Website is for both buyers and sellers to
trade their products. The difference from an e-procurement Website is the
product category for trade. At an e-procurement site, product category is
narrowed for only one group of customers.
3.5.2 e-Supply chain portal

As described in Section 3.4.3, a Web portal of an enterprise can provide a single
access interface for BPM. A Web portal can support collaboration by providing
knowledge to collaborators, and transaction information to customers and
suppliers. The e-procurement approach can actually be implemented through
Web portals. In a case of e-supply chain portal application to US Defense
department, the use of portals as integrated e-supply chain architectures has
integrated diverse sectors and organizations [23]. The portal allows more
effective management of the supply chain by providing the necessary tools to
everyone involved and allows the links of the supply chain to work together to
produce the best possible outcomes with the least manual work. Table 2
highlights the diffusion of supply chain portals. Benefits of the e-supply chain
portal application were also reported in this case as accessibility to enterprise
information, reduced time for transactions, etc.
Table 2: Diffusion of supply chain portals [23].
Organization Portal description

Launched supplier portals to handle
Sealy Corporation procurements for its 20 major US
(bedding manufacturer) plants from its top 20 suppliers
accounting for 96% annual purchase
(Computer World, June 11, 2001)
Delphi Systems Corporation Provided portals to 5,000 suppliers to
(automotive parts company) reduce delivery delays
Deployed supplier portals to link
Celestica Corporation services to 36 global manufacturing
(high tech equipment manufacturing) plants (Computer World, Dec. 17,
2001)
Uses portals to link supply chain
Sun Microsystems community of 30,000 key suppliers
(server manufacturing) and distributors in real time
(interviews)
3.5.3 Co-ordinated e-supply chain planning and decision-making
The transparent operational information supported by Internet and enterprise
systems underlie various co-ordination opportunities in e-supply chains.
3.5.3.1 Co-ordinated supply Suppliers can plan their production co-operatively

with customers’ operational situations, e.g. WIP, sales, product in stock, etc. An
effective approach of co-ordinated supply is vendor managed inventory (VMI).
VMI is not new in supply chain management technologies. However, with Web-
based technology, this approach can now be implemented much easier as real
time demand and production information of customers can be viewed by
suppliers. The information can also be integrated with a supplier’s enterprise
system or BPM system. This can be achieved by using the stock level or other
appropriate information of the customer to trigger supplier’s production based on
pre-defined rules. The VMI approach builds a mutually agreed replenishment
model for the supplier. Stocks of the customer are replenished automatically by
the supplier when an alert message is received. While suppliers keep alert on a
customer’s operations, the customer can also examine the supplier’s situation. If
a risk of a supply delay can be perceived, the customer can take action to pursue
alternative resources when necessary. In a case of the VMI approach application
a clothing company, Fruit of the Loom, producing underwear, casual wear, etc.,
set up a VMI system for its customers [24]. The VMI system has helped the
company with improved utilization of its own inventory by synchronizing its
production with the customers’ POS information.
3.5.3.2 Co-ordinated product development Product development is crucial to

reduce time-to-market, improve product quality and reduce costs. To find out a
suitable technology for a given design, Web-based search can be used for the
best solution. This can be implemented by searching an Intranet with a
community for knowledge sharing, or searching openly on the Web. During
product design, design information can be shared among e-supply chain partners.
Web-enabled CAD and concurrent engineering tools facilitate synchronized
design planning and sharing product design drawings, specification data, design
changes, etc., with the design team members. A Web-based knowledge sharing
tool for engineering design and manufacturing operations was developed by
Toussaint and Cheng [25]. The Web-based engineering approach enables
engineers to implement tolerancing design for manufacturing co-operatively by
sharing on-line design data through a graphical interface. Benefits are reduced
design time, consistent product data, knowledge sharing among supply chain
members for implementing a concurrent engineering process for better product
quality and lower lifecycle costs.
3.6 e-Supply chain automation and optimization with agent-based
technology
e-Supply chain operations are frequently implemented in a dynamic virtual

integrated environment due to incorporating e-business approaches as discussed
in Section 2. To deal with the dynamics, virtuality and complexity of e-supply
chain networks, automated transaction processing is in demand for e-supply
chain management. At present, e-supply chain management technologies can
only automate some simple transaction tasks without human intervention. This is
due to the complexity of e-supply chain operations, which require human
decisions on conflict operational tasks, selection of critical resources, making
agreement on negotiations, optimizing operations, etc. In the networked,
dynamic e-business environment, transaction complexity, demanding
promptness, dynamic partnering and a heterogeneous technical platform make
co-ordination and negotiation tasks with on-line partners a great challenge to e-
supply chain managers. It is obvious that e-supply chain management tools need
more intelligence to assist people perform the management tasks. One of the
promising technologies for this purpose is the intelligent agent-based system. An
intelligent agent is an active object (software unit) which possesses certain
abilities to perform tasks and communicate with other agents for system goals
[26]. Agent-based systems have been extensively studied in academic research
for automating business operations. Application cases in supply chain
management and e-business can also be found. In this section, applications of the
agent-based technology to e-supply chain management will be introduced.
3.6.1 Functions of agent-based systems

Functions of intelligent agents can be classified into internal functions and
external functions [27]. They are summarized as follows:
Internally oriented functions:

(1) Autonomy. Agents perform autonomously based on pre-defined protocols
and system goals. They cannot be directly invoked. The function enables
agents to complete tasks independently (to some extent).
(2) Self-learning. Agents can learn from the environment in which they are
working. This function enables agents to adapt themselves to environment
changes.
(3) Proactivity and reactivity. Agents respond to environment events reactively
in a timely fashion. This function enables agents to recognize environment
changes. Agents can also proactively complete tasks based on systems
goals. The function enables agents to pursue predefined objectives.
Externally oriented functions:

(4) Co-ordination and Co-operation. Agents perform tasks co-operatively with
other agents so that common goals can be realized. The agents can also co-
ordinate with other software agents or human agents to solve conflicts in
tasks.
(5) Communication. Agents are able to receive and send messages so that they
can interact with the environment.
3.6.2 Applications of intelligent agent systems to e-supply chain

management
Intelligent agent technology has been applied to many aspects of supply chain
management and e-business. The technology can primarily assist e-supply chain
management in three areas: automation, co-ordination, and optimization. Agents
are designed for implementing a small range of tasks, e.g. communication
agents, negotiation agents, optimization agents, etc. The narrowed functional
design enables the agents to autonomously complete assigned tasks. However, a
real transaction requires a series of tasks and needs more than one agent to
complete the transaction. Therefore, multi-agent systems should be developed
for e-supply chain tasks.
3.6.2.1 Automation of e-supply chains Automation means that systems can

automatically and flexibly interact with each other. Due to the complexity of e-
supply chain operations, tasks for conflict-solving, negotiation, and making
decisions are difficult to be automated without human intervention. Static and
structured processes can be, and have already been automated, e.g. on-line order
processing, on-line payment, issuing invoices, etc. However, to automate
dynamic and unstructured/semi-structured processes, information systems for e-
supply chain management must be able to autonomously and intelligently
perform the tasks so that the human workload can be taken over to some extent.
Intelligent multi-agent systems have been developed for this purpose in some
cases.
Interface Agent
XML Parser
Message
Component User
User
XML Message controller Interface
Message generator
Event
Task Agent
XML Parser Trigger
Message
Component Back end Internal
XML Message controller Channel Process
Message generator
Event
Information Agent
XML Parser Trigger
Message
Component Query
controller DB
XML Message Manager
Message generator
Figure 12: Internal structure of three types of agents (Source: adapted from [28]).
An example of agent-based supply chain systems is a system for managing a

logistics process of product maintenance service [28]. This case aims at
improving the capability of the timely provision of critical maintenance services
and service parts. For this purpose, a product-support logistics chain with supply
chain partners (equipment manufacturers, parts distributors, customers) has to
collaborate for the efficient exchange of relevant information. The system
focuses on facilitating timely sharing and exchanging of information through
agent communication for business process automation.
In the case, a multi-agent system was developed for various tasks at the
manufacturers, distributors and customers in the chain. Three types of agents
were developed: interface agents, information agents, and task agents. Interface
agents are designed to interact with users. Information agents are responsible for
communicating with other agents. Task agents are assigned to workflow tasks. A
protocol was designed to guide interactive behavior of the agents. An XML
format is used for transferring messages between agents. To automate the Web-
based service supply chain system, the three types of agents work together
controlled by an interaction protocol, and communicate in a standard language.
Figure 12 illustrates three types of agents to autonomously execute tasks in this
case. Through automated and timely agent interaction, the system improved
communication speed, data correctness, and responsiveness to customer
demands in the supply chain.
Figure 13: Mobile agents applied to a VE remote supervision environment

(Source: [9]).
Another example is a remote control system for manufacturing process

automation. In a virtual e-supply chain environment, some tasks need to be
executed remotely in a timely manner, particularly for tasks of distributed
manufacturing control, and railway transportation control, etc. Agent technology
has been employed to monitor and control remotely distributed tasks. The agents
can move from one Internet site to another site to assist human agents controlling
tasks at multiple sites at the same time. This type of agents is called mobile
agents. Mobile agent is a software application that moves on its own to different
sites, and then is activated to execute tasks [29]. Figure 13 illustrates an example
of mobile agents for control of distributed manufacturing processes. Through the
agent-based remote control, the distributed manufacturing processes can be
efficiently monitored and synchronized in the virtual enterprise (VE).
3.6.2.2 e-Supply chain co-ordination and optimization In essence, e-supply

chain automation cannot be realized without successful co-ordination between
supply chain partners. Co-ordination, particularly negotiations for an agreement
to execute business processes, is critical to automation and optimization of e-
supply chain operations. The dynamic and unstructured interaction contents and
format make the co-ordination an important issue in e-supply chain management.
For co-ordination, the most complex and unstructured activity is negotiation. To
automate a negotiation process requires modeling human behavior, defining
negotiation languages, and developing protocols. The protocol will tell agents
how to interact with other agents and when to call human agents for making a
decision.
Research on negotiation protocols, ontologies, and languages have been
reported in the literature over the past three decades. However, only in the 1990s
did the automated negotiation technology become a practical issue due to the
emerging new business opportunity, e-business. In recent negotiation research,
there are mainly three themes: game theory-based approach, heuristic-based
approach, and argumentation-based approach. These approaches are modeled by
different theories. When e-supply chain partners use different negotiation
approaches, automation of the negotiation process becomes a very difficult task.
Therefore, approaches to connect different negotiation systems are required.
In the case of supply chain co-ordination and optimization [30], the agent-
based technology and a co-ordination model are used to automate and optimize
the e-supply chain co-ordination process. In this case, a co-ordination system
was built in a retail supply chain context. The agent-based system has been
developed with three layers, i.e. decision layer, co-ordination layer and
optimization layer. There are four major components in the system – a business
abstraction model, a decision agent, a co-ordination agent and an optimization
agent.
Source Conversion Delivery

Planning Supplier On-time … Work WIP … Product Shipping
leadtime supply cost stocks leadtime
On time
delivery
Reliability Order fill
rate
……
Product
Cost price
……
Relationship matrix
Upside (parameters to indicate importance of each decision
flexibility
factor to objectives)
Response
Flexibility time to
change
……
Order
fulfil
Speed leadtime
……
Figure 14: The matrix for abstracted decision processes (Source: [30]).
The system structure and the three components are described below:
(1) Business abstraction model. The model was developed based on an

extended quality function deployment (EQFD) tool (as seen in Figure 14).
The model is integrated into the co-ordination system for two purposes.
Firstly, it is used to provide transparent decision-making information for
enhancing mutual understanding between e-supply chain partners, so that
negotiations can be more efficiently completed with an agreement.
Secondly, the extended EQFD model provides a tool to co-ordinate
business processes among supply chain partners by evaluating impacts of
each local (company level) decision on partners and the whole supply
chain. The evaluation results are displayed by performance indexes and
used in co-ordinated planning processes. As seen in Figure 14, the model
contains key decision factors, objectives and their relationships. This
information is programmed into the system, and displayed on user
interfaces, so that decision processes can be abstracted into a visible
graphic format to support decision-making.
(2) Decision agent. The decision agent at the decision layer includes
communication control, planning module and data service module. They
are responsible for local (company level) decision-making. The decision-
making approach and negotiation strategies are domain and organization
specific. Therefore, they cannot be standardized. The decision processes are
completed locally, based on internal and external constraints and
instructions given by the co-ordination layer and optimization layer.
(3) Co-ordination agent. A coordinator agent at the co-ordination layer
includes communication control, argumentation module and co-ordination
module. The argumentation module will be developed as the core
component in co-ordination agents based on the decision-making
transparency principle and the business abstraction model. The co-
ordination module is an analyzer that collects information from the
argumentation module and requests argumentation messages from related
partners. The information is analyzed to present key constraints and key
enablers to improve performance of the company and whole network. The
agents will also instruct a negotiation process to start, continue and
terminate.
(4) Optimization agent. The agent at the optimization layer aims at directing
local decisions towards global optimization which maximize joint gains for
supply chain partners. The agents include communication control and
optimization module. The optimization module will be designed to request
performance, priorities of objectives and other decisional parameters from
related partners. The module provides recommended solutions on decision
factors to pursue maximum joint benefits. The agent calculates direct and
indirect impact of local decisions and provides guidance for local decision-
making. Figures 15, 16 and 17 illustrate the architectures of the agents.
Coordination Layer
Interface
Com m unication
D ecision Services
Planning Decision
m odule m odel base
Data
Service D atabase server
D atabase
M iddlew are
Figure 15: The architecture of a decision agent (Source: [30]).
Optimisation Layer
Interface
Communication Control
Coordination Communication Partner

Argumentation
Service Control Coordin
Services
Coordination Agent
Argumentation Interface
module
module
Interface
Communication C ontrol
Decision Layer
Figure 16: The architecture of a co-ordination agent (Source: [30]).
Optimisation Services
Optimisation
module
Interface
Communication Control
Coordination Layer of partners
Figure 17: The architecture of an optimization agent (Source: [30]).
The co-ordination system with three-layered architecture separates individual
negotiation and decision-making platforms from the global co-ordination
approach, so that a standard and flexible co-ordination protocol can be
implemented. The system reduces co-ordination time and man-made errors;
increases customer numbers which can be dealt with at the same time for
negotiations in e-supply chain operations, improves negotiation interface with
transparent decision information; improves trust and mutual understanding, and
maximizes joint gains from negotiation results for e-supply chain partners.
3.7 Next generation technologies and e-supply chain management
It has been broadly recognized that the grid computing technology will
significantly affect the next generation of Internet technology and the e-business
roadmap. Grid computing technology includes data grids which enables seamless
access to distributed data in files and databases, computational grids which
leverage spare computing power to solve complex problems, and service grids
which create an infrastructure for sharing Web services [31]. These technologies
will greatly improve integration capability of Web-based systems. As a result,
application of grid computing technologies will further facilitate e-supply chain
integration and improve the efficiency. Currently many business functions have
been automated with online systems. The grid technology with current available
standards (TCP/IP, SMTP, FTP, HTTP, HTML, XML, Web services, etc.) and
more advanced hardware (faster chips and network wide band) will seamlessly
connect all supply chain elements, and automate and optimize more supply chain
operations. Currently, technologies in enterprise networks and supply chains
have not been fully integrated, as shown in Figure 18.
File Transfer D B M S Access

Enterprise N etw ork
E-M ail M essage W eb S ervice
Figure 18: Conventional enterprise system architecture (Source: [32]).
Semantic Awareness
Enterprise Nervous System
Process
Process Awareness
Awareness
Figure 19: Enterprise nervous system (ENS) architecture (Source: [32]).
Business Enterprise
Semanti Process Service
c
Transformation Event and Bus
Managers
Alert
Rules
Managers
Integration Engines
Brokers
TCP/IP, HTTP, FTP, SMTP, MOM, SOAP
Shared
Data Operational Business
Integration
Warehouses Data Stores Components
Metadata
Message Collaborations
Taxonomies Message
Warehouses and Analytics
and Schemas Queues
Figure 20: Technology for the Grid and ENS (Source: [32]).
The worldwide grid and enterprise nervous systems (ENS) will facilitate the
world-wide integration of business processes, as illustrated in Figures 19 and 20.
More and more supply chain operations will be able to be dynamically optimized
through the computational technology. Spare computing capacities will be
efficiently utilized for analyzing and optimizing business processes for supply
chain members. Currently, this is virtually out of reach for the majority of small
and middle sized companies. Such technological advancement aims to e-supply
chain management with simplified network access, seamless connectivity,
increased efficiency, improved agility, and lower costs.
The other trend of technology development is Web-based intelligence. The
next generation e-supply chain management is expected to be more intelligent,
i.e. provide more decision support functionality to business. Today, more and
more decision support technologies include data warehouse, data mining, on-line
analytical processing, and knowledge-based systems. Neural networks
computing and agent-based systems have been applied to Web-enabled business
process management. This development will add more capabilities to current on-
line services, most of which focus on merely transaction processing. The
Internet-enabled intelligence will then allow e-supply chains to operate more
efficiently.
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CHAPTER 10

e-Supply chain management

2 Principles of e-supply chain management

Second-tier Manufacturing &

Figure 1: (a) Traditional supply chain structure.

2.1 Adding values to e-supply chains

Manufacturing supply chain management should focus on maximizing values

Figure 2: Value-adding activities of an e-supply chain.

Traditionally, values are mainly added by primary supply chain functions,

2.2 e-Supply chain management focused on core competence

An enterprise should concentrate on the core competence of its business in e-

2.3 e-Supply chain integration

Supply chain integration ensures a supply chain operating seamlessly as an

2.3.1 Synchronization-oriented integration

2.3.2 Co-operation-oriented integration

2.3.3 Innovation-oriented integration

2.4 e-Supply chain co-operation

Co-operation is a strategic term in supply chain management. It is an important

2.4.1 Partnership and co-operation

2.4.2 Information exchange and co-operation

2.4.3 Virtual organization and co-operation

2.5 Managing e-supply chains as virtual enterprises

By applying an e-business approach, at least part of supply chain operations can

2.5.1 Properties of e-supply chain virtuality

2.5.1.1 Virtual environment Internet has been applied to developing various

2.5.1.3 Virtual organization Virtuality in the virtual enterprise context

Figure 3: Virtual enterprise formation (Source: [10]).

2.5.2 Functions of virtual enterprise

2.5.2.1 Virtual customer interaction This function concerns customer service

2.5.2.2 Virtual asset configuration This function concerns virtual enterprise

2.5.2.3 Virtual knowledge management With e-business applications,

2.5.2.4 Virtual process co-ordination The dynamically organized workflows

3 Methodology and tools for e-supply chain management

With applications of the Internet technology, e-business and virtual enterprises

3.1.1 Information publishing

3.1.2 Interaction support

3.1.3 On-line transaction

3.2 Information systems for e-supply chain management

A supply chain system is a work system implementing business transactions,

3.2.1 Development history of supply chain information systems

In the 1990s, MRP II was further evolved to enterprise resource planning

Distributed & dynamic on-line E-Supply chain

Marketing & Sales Human resource ERP

Purchasing Inventory control

Figure 5: Development history of supply chain planning information systems.

3.2.2 Infrastructure of information systems for e-supply chain management

• Communication systems (CS)

(b) Finance/Human Sales/

Operational Database Data warehouse

Figure 6: (a) Function focused enterprise information system infrastructure.

Theses information systems support different business functions within or

Figure 7: e-Supply chain information system infrastructure.

3.2.3 Communication systems

3.2.3.1 Functions of communication systems Primary functions of

(1) Obtain and exchange information between individuals or groups. These

3.2.3.2 Types of communication systems These include:

(1) Teleconferencing. It includes audio teleconferencing and video

3.2.4 Transaction processing systems (TPS)

(1) Database systems as the back-end for implement transactions;